Keeping up with the latest mortgage news is crucial for anyone looking to buy a home or refinance their mortgage in the UK. It's a very competitive marketplace with frequent changes in interest rates, new lending criteria, and the overall direction of the housing market are major factors that have a big impact on making the right financial decisions. With the Bank of England's recent actions and the wider economic environment influencing the mortgage landscape, it's important to have access to the latest information from across the market, and that's one of the ways that we can help to make things easier for you. In this article, we'll cover the essentials, from updates on mortgage rates to insights into the local housing market, aiming to provide clear and useful information to help you navigate your mortgage options with confidence.
Pause in Mortgage Rate Dive
It looks like the rollercoaster ride of mortgage rates is taking a brief pause after months of diving down. Since October, lenders have been on a bit of a spree, slashing fixed mortgage rates left, right, and centre. But as we stepped into February, the trend hit a slight snag. The average two-year fixed rate mortgage, which was chilling at 5.56 per cent at the start of the month, started to nudge up to 5.59 per cent, source Moneyfacts. And it's not going solo; the five-year fix has also crept up from 5.18% to 5.23%.
Mark the date, 2nd February, because that's when Nationwide Building Society decided to shake things up a bit, bumping up rates on some of its deals by up to 0.30% points. But don't get too jittery yet—it seems like lenders are more in a 'let's wait and see' mood rather than signalling a full-on rate hike tsunami.
Rewind to last year, and you'll remember a series of base rate hikes and less-than-cheery inflation news pushing the average two-year fixed mortgage rates to a peak of 6.86% during the summer, Moneyfacts points out, with five-year fixes not too far behind at 6.37%.
However, the tide began to turn as inflation started to ease off, and the Bank of England kept the base rate steady at 5.25% since September. This prompted a wave of rate cuts from mortgage lenders, a trend that boldly continued into 2024. January was particularly buzzing, with over 50 mortgage lenders cutting their residential rates, some even going for round two.
Even though average rates have inched up over the past week, the cream of the crop deals are still hanging around where they were at January's end. For those hunting for bargains, the lowest rates are flirting with just below 4% for a five-year fix or a smidge above 4 per cent for two years.
In the grand scheme of things, today's mortgage rates are still playing in the higher leagues compared to the good old days before 2022 threw us a curveball. Cast your mind back just over two years, and you'd find the average rates for a five-year fix lounging at a comfy 2.5%, with two-year fixes even more snug at 2.25 per cent.
And get this – back in October 2021, you'd have stumbled upon mortgage rates that were practically giving it away, ducking under the 1% mark. Reminding us just how much has changed in a relatively short span.
The Ups and Downs of UK Mortgage Rates
Mortgage rates in recent years have been a rollercoaster, starting with a rise in late 2021 due to inflation, prompting the Bank of England's base rate hike. September's unfunded tax cuts by Chancellor Kwasi Kwarteng caused market turmoil, but when Prime Minister Liz Truss resigned in October and new Chancellor Jeremy Hunt reversed policies, stability returned. However, 2023 brought more twists, with high inflation forecasts pushing rates up. Yet, a June inflation report surprised, leading experts to adjust peak rate predictions to below 6%. The narrative highlights the unpredictability of mortgage rates amidst economic and political changes.
With subsequent positive inflation readings, the market consensus now pegs the base rate peak at 5.25 %, aligning with current levels. With eyes now set on 2024, the markets are abuzz with talks of base rate cuts. It's a tale of anticipation, showcasing the unpredictable ebbs and flows of the UK's mortgage rates saga.
How Future Base Rate Expectations Shape Today's Mortgage Rates
If you're in a fixed-term mortgage deal, fretting over today's base rate is a bit like watching last week's weather forecast – interesting, but not immediately useful. What really matters is where the financial soothsayers predict the base rate is headed down the line.
Banks and lenders are a bit like fortune tellers with their crystal balls, trying to predict the base rate's next moves. They adjust their fixed mortgage rates based on where they reckon the base rate will max out and how long they think high inflation will stick around like an unwelcome party guest.
Predictions for the base rate's peak have cooled off from a scorching 6.5% down to a more temperate 5.2%. As 2023 was packing up its bags, the market was betting on six base rate cuts in 2024. Following a hotter-than-expected inflation report at 4% (the markets had their money on 3.8%), the expectations have been adjusted.
These forecasts are mirrored in something called swap rates which give us a sneak peek into the banking sector's predictions for interest rates.
As of 5 February, the swap shop tells us five-year rates are sitting pretty at 3.56%, with two-year swaps a touch higher at 4.15% – both figures lounging comfortably below the current base rate. It's a slight uptick from the start of the year but a dip from the 17 January spike, when the latest inflation news sent swap rates to 3.75% and 4.29%, respectively.
Yet, rewind to the summer of 2023, and you'd find five-year swaps flexing above 5 per cent, with two-year counterparts pushing 6%. It's a reminder that in the world of mortgages, the only constant is change – and keeping an eye on the future can make all the difference.
Stability Amid Predictions
Starting in 2023, there were many predictions of a severe downturn in the housing market due to high mortgage rates and inflation. Yet, the expected crash hasn't happened. Depending on the house price index you look at, property prices throughout 2023 either decreased only slightly or increased a bit.
The Office of National Statistics (ONS) reports a 2.1% decrease in the average sold price in the year to November 2023. In contrast, Halifax, based on its mortgage approvals, observed a 1.7% increase in house prices over the year to December.
Nationwide saw house prices in January rise by 0.7%, with the average property price moving from £257,443 to £257,656. Predictions for the next year vary, with some expecting a further decline in prices by up to 5% in certain areas. However, there's also a positive outlook from some quarters.
Knight Frank, earlier this week, revised its forecast from a 4% decline to a 3% increase in house prices this year, citing falling inflation leading to lower interest rates as a key factor. This sentiment is shared by some estate agents who note a change in the market due to decreasing mortgage rates.
Simon Gerrard of Martyn Gerrard estate agents mentioned a noticeable increase in buyer interest, with a 20% rise in registrations compared to last year. Alex Lyle from Antony Roberts estate agency also highlighted a significant improvement in market sentiment since the start of the year, attributed largely to the adjustments in mortgage rates.
In summary, despite early fears of a downturn, the housing market has shown resilience, with a mixed but cautiously optimistic outlook for the future.
How can a Mortgage Broker help?
As we look ahead, it’s clear that change is the only constant in the mortgage market. For borrowers, this means being prepared, staying informed, and ready to adapt to whatever comes next.
Clearly, there are a lot of moving parts when it comes to the current trends of UK mortgage rates. It’s a lot to keep up with and can be confusing for those who don’t understand the details or have access to all the latest information, that’s why Mortgage Brokers are here to help.
As your mortgage broker, I'm here to understand your needs, break down options, and make the mortgage process less confusing. My goal is to make things easy for you and provide peace of mind in what can be a daunting experience. With over 20 years of experience, I've helped countless clients navigate through market ups and downs to find the best solution for them.
